Infrastructure bonds enthusiastically endorsed

The $1.1 trillion superannuation sector has backed the use of infrastructure bonds to pay for major projects as the Gillard government faces calls to fund more initiatives despite a shortage of federal cash.

Business Council of Australia president
Graham Bradley
urged greater action to finance construction amid warnings that chronic underinvestment would curb economic growth.

The calls came after The Australian Financial Review revealed the government was considering reintroducing infrastructure bonds, with tax breaks to appeal to private investors, including super funds.

The Association of Superannuation Funds of Australia and the Financial Services Council both endorsed the concept yesterday.

The association’s chief executive,
Pauline Vamos
, said infrastructure bonds could attract super funds and sovereign wealth funds and other private investors, particularly because they could offer steady performance over long periods. “They are fabulous as part of the investment strategy for post-retirement investors in particular," she said.

Some individual projects were too small to attract substantial funding from super funds but pooling the funding over many projects would make more sense, she said.

The Financial Services Council polled its members earlier this year and concluded there was strong interest in new investment structures to pay for infrastructure.

“Instruments such as municipal bonds, which have been used in the United States for many years, could be used here in Australia to provide government access to superannuation monies to fund critical infrastructure projects," it said in a report.

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Financial Services Council chief executive
John Brogden
has welcomed the idea of long-term bonds that could support annuity investments for retirees.

The Treasury and Finance departments have advised the Gillard government that the list of priority infrastructure projects exceeds the federal government’s ability to fund new work, given the plan to return the budget to surplus by 2013.

The Australian Local Government Association said yesterday that councils needed $1.2 billion for roads.

Industry Funds Management chairman
Garry Weaven
said infrastructure bonds would “have a positive impact at the margin". However, he said it was more important for the government to provide long-term infrastructure investors with a “steady flow" of deals.

Mr Bradley said it was important for the government to look at ways of encouraging private sector investment, including tax incentives.

“We have a backlog of underinvestment in infrastructure which we need to fix and it’s important that private sector resources are marshalled appropriately," he said.

Treasurer
Wayne Swan
said the government was investing about $37 billion in road, rail and port projects as well as allocating $6 billion from the proposed resources rent tax.